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Unum 2011 Annual Report
Unum
2011
125
Notes To Consolidated Financial Statements
Realized Investment Gain and Loss
Realized investment gains and losses reported in our consolidated statements of income are as follows:
Year Ended December 31
(in millions of dollars) 2011 2010 2009
Fixed Maturity Securities
Gross Gains on Sales $ 74.0 $ 61.1 $ 48.6
Gross Losses on Sales (24.0) (41.3) (83.5)
Other-Than-Temporary Impairment Loss (19.9) (15.9) (211.8)
Mortgage Loans and Other Invested Assets
Gross Gains on Sales 7.1 7.9 10.0
Gross Losses on Sales (0.5) (0.5) (0.4)
Impairment Loss (0.6) (3.8) (8.1)
Embedded Derivative in Modified Coinsurance Arrangement (39.4) 21.1 243.1
Other Derivatives — — 12.3
Foreign Currency Transactions (1.6) (3.9) 1.5
Net Realized Investment Gain (Loss) $ (4.9) $ 24.7 $ 11.7
Note 4. Derivative Financial Instruments
Purpose of Derivatives
We are exposed to certain risks relating to our ongoing business operations. The primary risks managed by using derivative
instruments are interest rate risk, risk related to matching duration for our assets and liabilities, and foreign currency risk. Historically, we
have utilized current and forward interest rate swaps and options on forward interest rate swaps, current and forward currency swaps,
forward treasury locks, currency forward contracts, and forward contracts on specific fixed income securities. Hedging transactions are
primarily associated with our individual and group long-term care and individual and group disability products. All other product portfolios
are periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes.
Our cash flow hedging programs are as follows:
• Interest rate swaps are used to hedge interest rate risks and to improve the matching of assets and liabilities. An interest rate swap
is an agreement in which we agree with other parties to exchange, at specified intervals, the difference between fixed rate and
variable rate interest amounts. The purpose of these swaps is to hedge the anticipated purchase of fixed maturity securities thereby
protecting us from the potential adverse impact of declining interest rates on the associated policy reserves. We also use interest rate
swaps to hedge the potential adverse impact of rising interest rates in anticipation of issuing fixed rate long-term debt.
• Foreign currency interest rate swaps have historically been used to hedge the currency risk of certain foreign currency-denominated
fixed maturity securities owned for portfolio diversification and to hedge the currency risk associated with certain of the interest
payments and debt repayments of the U.S. dollar-denominated debt issued by one of our U.K. subsidiaries. For hedges of fixed
maturity securities, we agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments
in exchange for fixed rate payments in the functional currency of the operating segment. For hedges of debt issued, we agree to pay,
at specified intervals, fixed rate foreign currency-denominated principal and interest payments to the counterparty in exchange for
fixed rate U.S. dollar-denominated interest payments.